Trying to calculate an owner financing mortgage payment for an Elkview, WV, house? Start with the proposed numbers and the payment schedule. A monthly amount by itself won’t tell you what you’re borrowing, what it costs or when the remaining balance is due.
Here’s a simple way to work through the calculation and the questions behind it. The figures below are made up for illustration; they aren’t an AM Investments offer or a quote for a particular house.
Start with the amount being financed
Write down the sale price, down payment and any costs that would be added to the balance. If a hypothetical house costs $120,000 and the buyer puts $20,000 toward that price, the financed amount would be $100,000 before any additional financed costs.
Next, identify the annual interest rate, payment frequency and amortization period. Amortization is the schedule used to calculate how the loan would be paid down. Keep that schedule separate from the date when the agreement requires full repayment.
A hypothetical owner financing mortgage calculation
- Financed amount: $100,000.
- Fixed annual interest rate: 6%.
- Schedule: 360 equal monthly payments over 30 years.
- Monthly principal and interest: about $599.55.
This calculation assumes monthly interest at 6% divided by 12 and payments at the end of each month. It excludes taxes, insurance, fees, repairs and other costs.
Check what the payment actually covers
Ask for a written payment schedule showing how much goes to interest and how much reduces the balance. For the first month in this example, interest would be $500. The rest of the $599.55 payment would reduce principal.
An interest-only arrangement using the same balance and rate would produce a different result: $500 a month would cover interest without paying down that $100,000 balance. Don’t compare the two monthly figures as though they accomplish the same thing.
Ask when the balance must be paid off
An owner financing mortgage may have a repayment deadline that is shorter than the amortization schedule. In our math example, about $93,054 would remain after 60 scheduled payments. A requirement to pay off the loan then would be very different from continuing the payments for 30 years.
The CFPB’s balloon-payment guide explains the risk of a large final payment. Don’t assume you’ll be able to refinance when that date arrives. Have a qualified professional check whether the proposed structure and terms are permitted for the transaction.
Understand what happens to title
Don’t assume a seller-financed purchase always leaves ownership with the seller until the final payment. Ask the attorney and closing professional to explain the actual documents, when title transfers and what secures repayment.
The CFPB explains that a contract for deed retains legal title with the seller until payment is complete. That is a particular structure, not a description to apply automatically to every seller-financed purchase.
Before accepting an owner financing mortgage payment
- Check the starting balance and written payment schedule.
- Add taxes, insurance, maintenance and other expenses to your budget.
- Identify any balance due before the amortization ends.
- Get the title, lending and contract questions reviewed before signing.
Use the calculation as a starting point
Our guide to reviewing an owner financing mortgage proposal covers the broader conversation. A payment that looks manageable still needs to fit the full agreement and your circumstances.
For a question about an AM Investments property purchase, use our contact page or call 304-250-9336. This calculation is educational; it doesn’t establish financing availability or approval.
